I Bonds Explained: The Safest Way to Beat Inflation

I bonds are U.S. Treasury savings bonds with an interest rate that automatically adjusts with inflation every 6 months. When inflation surged to 9% in 2022, I bonds were paying 9.62% — guaranteed by the U.S. government. They're not exciting, but they're one of the safest ways to preserve purchasing power.

How I Bond Interest Rates Work

I bond rates have two components: a fixed rate (set when you buy, stays for life of the bond) and an inflation rate (adjusts every May and November based on CPI). The combined rate is reset every 6 months. You always earn at least 0% — I bonds can never lose nominal value.

I Bond Pros

• 100% backed by the U.S. government — zero default risk
• Rate adjusts with inflation — your purchasing power is protected
• Interest is exempt from state and local taxes
• Federal taxes are deferred until redemption (or up to 30 years)
• Can be tax-free if used for qualified education expenses

I Bond Cons and Restrictions

• Annual purchase limit: $10,000 per person per year (plus $5,000 via tax refund)
• Must hold for at least 12 months before redeeming
• Redeeming in years 1–5 forfeits the last 3 months of interest
• Can only be purchased at TreasuryDirect.gov — no brokerage access
• Not ideal for money you might need quickly

Who Should Buy I Bonds?

I bonds are best for: money you won't need for at least a year (emergency fund tier 2), conservative investors who want inflation protection without market risk, and people in high-income-tax states (no state tax on interest). They're not ideal for short-term savings or aggressive investors with long time horizons who can handle stock market volatility.

How to Buy I Bonds

1. 1Go to TreasuryDirect.gov and create an account
2. 2Link your bank account
3. 3Purchase I bonds ($25 minimum, $10,000 maximum per year)
4. 4Bonds are held electronically in your TreasuryDirect account
5. 5To redeem, log in and submit a redemption request — funds transfer to your bank in 1–2 business days